McCullough v Maryland, 1819:
In the early decades of the American republic, the lack of a single national currency was a continual problem. State chartered banks, some cities and towns, and even private companies issued currency, but the face value of the currency varied from place to place. The result was a constant threat of economic chaos. In an attempt to solve this problem, Congress issued a charter for the Second Bank of the United States in 1816; the first Bank had been allowed to dissolve in 1811. The new Bank would issue currency that it would back with gold and silver, presumably bringing order to paper money transactions.
Regional branches of the Bank were opened in several states, but a series of bad loans in 1818 led the headquarters of the Bank to begin calling in loans, requiring payment in gold, silver or the notes of the Bank. Panic ensued as other banks refused to make loans, businesses failed, and a crisis of confidence ensued that was blamed on the Bank. In some states, the legislatures began devising ways to drive the Bank of the United States out of their states. Maryland, as well as several other states, attempted to do so by imposing taxes on the federally chartered Bank. At the Baltimore branch, the new tax was purposely ignored. In response, the state sued the branch cashier, James McCulloch, and the state trial court and appellate court decided in Maryland's favor.
In 1819, the Bank, through McCulloch, appealed the state court decision to the Supreme Court of the United States. Counsel for the Bank was the renowned lawyer and orator, Daniel Webster, who argued that the state was illegally attempting to tax the federal government. According to Webster, the power to tax involved the power to destroy and no state had that power with regard to the federal government. On the other side, Luther Martin, the Attorney General of Maryland, argued that Congress simply did not have the power to create the Bank in the first place. He said Congress had exceeded its powers because the Constitution did not expressly authorize it to create a bank. After nine days of argument, the Court adjourned to make its decision.
Writing for a unanimous Supreme Court, Chief Justice Marshall declared that Congress did, indeed, have the power to charter the Bank of the United States. The Constitution, he said, grants Congress certain specific powers, but it also gives Congress the power to make all laws "necessary and proper" for carrying out its specific enumerated powers. Congress had acted properly, Maryland had not, and the Court ruled that the state's actions were "unconstitutional and void."
In the opinion, Marshall wrote, "we must never forget that it is a constitution were are expounding... a constitution intended to endure for ages to come, and, consequently, to be adapted to the various crises of human affairs." Although the decision reiterated the supremacy of the Constitution over the laws of the states, it did not end the debate over the Bank. President Andrew Jackson vetoed the recharter of the Bank in 1832, forcing it to close when its original charter expired in 1836. It should be noted that despite the Second Bank's controversial role, it was an important factor in the national economy during its twenty-year history.